The Management of Innovation: Experimental Evidence

42 Pages Posted: 18 Apr 2016

See all articles by David J. Kusterer

David J. Kusterer

University of Cologne - Department of Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Date Written: April 2016

Abstract

We report data from a laboratory experiment with 566 participants that was designed to test Aghion and Tirole's (1994a) management of innovation theory. A research unit and a customer can invest to increase the probability of making an innovation. When the innovation is made, the parties bargain over the division of the revenue. In line with Aghion and Tirole's (1994a) predictions based on the Grossman-Hart-Moore property rights approach, we find that ownership matters for the division of the revenue and the investments. However, communication can somewhat mitigate the theoretical problem that the customer will not relinquish ownership to the cash-constrained research unit.

Keywords: Incomplete Contracts, Investment incentives, Laboratory experiments, Property rights

JEL Classification: C92, D23, D86, O32

Suggested Citation

Kusterer, David J. and Schmitz, Patrick W., The Management of Innovation: Experimental Evidence (April 2016). CEPR Discussion Paper No. DP11215. Available at SSRN: https://ssrn.com/abstract=2766543

David J. Kusterer (Contact Author)

University of Cologne - Department of Economics ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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